It has spent $123 million to date on Liddell since buying it in 2014 and expects to spend a further $150 million to keep corrosion at bay and allow
the plant to keep chugging along until the end of 2022, its 50th year.

Generating about 9,000 gigawatt-hours of electricity a year, Liddell accounts for more than 10 per cent of NSW's power supply, but generation on any
one day is unpredictable as the operator struggles with outages.

In the February 2017 heatwave, three of the four turbines broke down. In the December 2017 half, it ran at 40 per cent of load, down from 52 per cent
in 2016-17.

Dimery is anticipating a ballpark figure of $1 billion to cover the cost of acquiring it from AGL, as well as investment in maintenance and refurbishment
to eke out operations until 2029.

Things have changed since 2014,
when AGL put a "zero" valuation on Liddell in its $1.5 billion takeover of Macquarie Generation from the NSW government, when the larger, newer
Bayswater plant next door in the Hunter Valley was the main game.

The acquisition was bitterly opposed by the competition watchdog, concerned about the power AGL would gain in the wholesale electricity market,
power it is loathe to give up.

Bottom line: AGL and WorleyParsons have the most current view of Liddell; CEO Andy Vesey says $920 million is what they reckon has to be spent to keep the plant safe and reliable.

How valuable is it to AGL?

Chief executive Andy Vesey prefers to focus elsewhere. "Extremely valuable" were his words of last week,
when he set out the plan to convert the Liddell site near Muswellbrook into an "integrated renewables hub" to serve NSW and rest of National Electricity
Market.

Vesey has pointed out that with the national energy guarantee in place, no shortfall would ever emerge from the Liddell shutdown. James Alcock

Lake Liddell is one of two sites AGL is considering for a pumped hydro storage project, with pre-feasibility studies underway, while a 250MW battery
is envisaged at the site down the track.

A gas power plant is also possible. Equipped with a hard-to-replicate substation connection to the NSW high-voltage grid, AGL is "duty bound" to figure
out how to repurpose the site, Vesey said.

The integrated coal transport and water infrastructure that Liddell shares with Bayswater was a key reason the generators weren't split up for sale
in the NSW government's power privatisation, and is cited by AGL today as one reason against the sale suggestion pushed by the federal government.

Bottom line: AGL would demand a large "opportunity cost" for ripping up its plans for the Liddell site and starting again somewhere else.

Some, such as pro-coal group Australian Power Project, have questioned by just how much a closure
of Liddell would inflate the value of the rest of AGL's generation portfolio.

"AGL is entitled to put forward their modelling but at a certain point we have to look at the reality that high electricity prices are being driven
by the closure of baseload power stations and their replacement by gas and renewables," the group's chief executive Nathan Vass says.

Bottom line: AEMO and the Australian Energy Market Commission both say that prices will fall as more renewable energy comes into the NEM, and AEMO says AGL's plan - if delivered - is sufficient to cover Liddell's exit.

The base case assumes AGL will only do what it has already financially committed to do – expand the capacity of Bayswater power station by 100 MW,
and complete the Silverton wind farm – and no-one else will step into the breach to do the rest.

In that scenario there would be a "significant risk of load shedding over peak periods after Liddell's retirement" - 200,000 homes may lose power for
up to five hours once every three years.

That is the least likely outcome but it is the one Frydenberg has focused on most. AGL gave seven years notice of Liddell's closure back in April 2015.
Unless we have completely lost faith in markets, we must assume there will be an investment response.

The task is not large. AEMO estimates 850 MW of new dispatchable (on demand) supply will be needed by 2026-27 to reduce the likelihood of load shedding
to once-in-ten -years. That's nearly a decade off.

AEMO's scenario assumes AGL's stage 1 - an additional 570 MW of gas, solar and demand response - is delivered on time. In that event, the risk of outages
is reduced to 174,000 homes losing power for 3.6 hours every four years.

But if AGL or others deliver on Stages 2 and 3 of AGL's plan as well - 500 MW of gas, 80 MW of demand response, 750 MW of new wind and solar power,
and a 250 MW battery on the Liddell site - then the risk of load shedding is reduced to 172,000 homes being without power for 2.2 hours once every 20 years.

To put this in perspective, AEMO is juggling applications for connections to the NEM covering 21,000 MW of mostly wind and solar power.

The bottom line: If AGL and other market players who have also indicated their eagerness to develop alternative sources of supply to replace Liddell's 1680 MW deliver on their investment plans, the National Electricity Market will be able to do without Liddell after it closes in 2022.

Why not just upgrade?

Engineers at GE's power services business hatched a plan to wring cheap capacity expansions and carbon emissions reductions out of existing plants
through efficiency upgrades in the middle of last year.

The GE engineers knew what they were talking about. The power services business was the original equipment designer for Liddell's boiler, turbine,
generator and fabric filter technology, and the plant was upgraded a bit more than a decade ago by Alstom – now part of GE – and Hitachi.

"Our analysis indicates that upgrades make less economic sense for plants that are closer to retirement, such as Liddell. There are other assets in
the system that are better candidates," Culbert said.

The GE chief also said upgrading existing coal plants was not a long term option and stable policy was needed to drive the transition to clean energy.

Bottom line: Liddell is the least likely candidate left in the NEM for a coal power life extension.

Can the market solve the problem?

Zibelman at AEMO, which is due to deliver its 'audit" of the grid's coal plants to the government next month, made clear that the best consumer outcomes would come from letting the market decide rather than becoming obsessed
with any one supplier or energy source.

This is especially so at a time when the economics of clean energy are improving rapidly - with costs if wind, solar and batteries falling and demand
management becoming more widespread - and extremely hot weather is becoming more common. Both these factors make even medium term bets on coal
risky at best.

"We noted that using a competitive market to meet defined reliability needs is preferable to designating a single participant from the perspective
of gaining the best outcomes for consumers," she said.

Policymakers generally favour approaches that set clear rules and then stand back and encourage market participants to place their best bets on what
new supply will best deliver the policy outcomes of reliable, affordable energy.

That's because when government steps into the market - whether with Snowy Hydro 2.0 or Liddell - private market participants may be deterred, weakening
supply in the long run.

As Zibelman and Vesey have pointed out, with the national energy guarantee in place, no shortfall would ever emerge from the Liddell shutdown. The
policy serves as a market mechanism to address the gap.

Bottom line: "If you believe in your own policy then you don't need to do anything with Liddell," says The Grattan Institute's Tony Wood.